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UPDATE 1-Beaten up BNY Mellon attracts Buffett, Hawkins and Yacktman
By Tim McLaughlin
BOSTON Aug 16 (Reuters) - Some well-known value investors have taken a shine to Bank of New York Mellon Corp, the world's largest custody bank, whose stock price remains below levels seen before the financial crisis imploded in 2008.
Mason Hawkins' Southeastern Asset Management and Don Yacktman's Yacktman Asset Management have joined Warren Buffett's Berkshire Hathaway Inc in building up positions in BNY Mellon in the second quarter, according to recent securities filings.
Value investors are placing bigger bets on BNY Mellon because the stock is trading at only 10 times forward earnings while its price-to-book-value skips along multi-year lows, according to Bernstein Research analyst Brad Hintz.
Over the past year, Berkshire has increased its stake almost 10 times to 18.7 million shares. Yacktman's stake has more than tripled to 7.8 million shares while Hawkins has increased his firm's position by 28 percent to 44.2 million shares, U.S. regulatory filings show.
Yacktman, who has a concentrated bet on consumer stocks, said the BNY Mellon investment is a reflection of spreading money over several positions in the financial services industry.
"It's not a huge position for us," Yacktman said. At the end of June, BNY Mellon shares accounted for 0.78 percent of the Yacktman Focused Fund and 1.18 percent in the Yacktman Fund.
Other value-oriented investors buying more BNY Mellon shares include Artisan Partners LP, First Eagle Investment Management and Mario Gabelli's GAMCO Investors Inc, which have increased their stakes by 97 percent, 46 percent and 25 percent, respectively, over the past year.
BNY Mellon's stock plunged from about $40 a share in September 2008 to as low as $18.25 in March 2009. The stock closed up 1.8 percent to $22.51 on Thursday, about 45 percent below the September 2008 high. Over the same period, the broader S&P 500 index is up 13 percent.
BNY Mellon and other trust and custody banks are operating in a subdued earnings environment because of ultra-low interest rates and declining global capital market activity.
Custody and trust banks perform a number of tasks: keeping track of mutual fund prices, lending securities to hedge funds, trading foreign currencies, managing money and ensuring that investors receive dividend and interest payments.
Bernstein's Hintz said many investors are focused on the current business cycle pressures that have hampered the earnings of custody banks.
"But a protracted disinterest in trust bank stocks suggests long-term earnings power may now be underappreciated," Hintz said Thursday in a research note. Bernstein raised its price target on BNY Mellon shares to $27 from $25.
Any rise in capital market activity and the abatement of fee waivers on money market funds, for example, could be a catalyst for future earnings growth, Hintz said.
BNY Mellon also is taking advantage of its low stock price. In the second quarter, the bank said it repurchased 12.2 million shares in the open market for $286 million, for an average of $23.38 per share.
"Our 2012 capital plan includes the repurchase of up to $1.16 billion of outstanding common stock and the continuation of the 13 cents per share quarterly cash dividend," BNY Mellon said in its quarterly filing with the U.S. Securities and Exchange Commission.
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